On July 1, 2010, the Securities and Exchange Commission brought a civil action against Travis L. Wright in the United States District Court for the Central District of Utah. The suit alleges that from the fall of 2001 through the spring of 2009, Wright, directly and through several sales agents, sold securities in the form of secured promissory notes issued by the Waterford Loan Fund, LLC, to approximately 175 investors in unregistered, non-exempt transactions, raising approximately $145 million. The notes bore interest at varying rates, from a rate of 2% up to a rate of 24% per year.
During the offer and sale of these securities, Wright represented to investors that their funds would be used only to make “hard money” loans secured by first liens on commercial real estate and that all the assets belonging to the Fund would be placed into a trust and held for their collective benefit. However, only about $6 million of the funds raised from investors were used in this manner, and no such trust existed. In addition, Wright failed to disclose to investors that he was using a significant amount of their funds for his personal benefit.
The SEC brought claims for 1) employment of a device, scheme, or artifice to defraud in violation of of Section 17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)(1)]; 2) fraud in the sale of securities in violations of Section 17(a)(2) and (3) of the Securities Act [15 U.S.C. § 77q(a)(2) and (3)]; 3) fraud in connection with the sale and purchase of securities in violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5] 4) offer and sale of unregistered securities in violation of violation of Sections 5(a) and (c) of the Securities Act [15 U.S.C. § 77e(a) and (c)]; and 5) offer and sale of securities by an unregistered broker or dealer in violation of Section 15(a) of the Exchange Act [15 U.S.C. § 78o(a)].
While these causes of action are not unusual in an investor fraud case such as this, the facts underling the claims are what makes this case interesting. As noted earlier, Mr. Wright did not use the majority of the funds he raised through the sale of the promissory notes for the purposes represented to the investors. Instead, he used the funds on himself and for a variety of speculative investments, including money put into a company called Mark One Foods, which was developing the sales of canned sandwiches - i.e. the "Candwich."
The New York Times reported that the president of Mark One Foods, Mark Kirkland, who claimed to have patented the idea of putting solid food in a canned beverage container, said Wright pledged financial backing for Candwich. The Candwich is to be available in peanut butter with strawberry or grape jelly, as well as bar-b-que chicken. Pepperoni Pizza Pocket and French Toast in a can are also planned.
This case is yet another reminder to investors to be vigilant in looking out for scammers pitching "too good to be true" investments. A complete copy of the SEC's Complaint (courtesy of www.npr.org) can be found here, and the New York Times article discussing the case can be found here.